Bulletin: NJ000035

Dear Associates:

While it sometimes appears to be routine to give "affirmative insurance" in most transactions, it must be remembered that affirmative insurance is customarily given in loan policies only and only after proper underwriting consideration. With regards to the buyer (owner insured) our obligation is to accurately report the status of title and let the buyer make an informed decision as to whether or not they wish to purchase the property subject to the restrictions, easements and other matters that are found of record or disclosed by a survey.

Occasionally, we are asked to give affirmative insurance in owner's policies. Such assurance may only be given after careful consideration and consultation with the Company. In 1995, when the New Jersey Department of Banking and Insurance approved the Restrictions, Encroachments and Minerals endorsement to be used on non-residential transactions, it recognized that an extra hazardous risk is assumed when providing this coverage in an owner's policy. Therefore, it approved a special risk rate of 10% of the applicable underwriting charge for the endorsement.

Recognizing that substance is more important than form, the Department of Banking and Insurance recently approved modification to the Rate Manual which makes it clear that when providing affirmative insurance in commercial owner's policies, the special risk premium of 10% should be charged even when the affirmative issuance is given by affirmative language in schedule B which is "substantially equivalent" to the coverage provided in the endorsement, rather than the formal issuance of the endorsement.

Please call the New Jersey District office for a revised copy of page 36 of the Rate Manual and replace this page in all Rate Manuals in your office.

UNDERWRITING GUIDELINES

The preferred method of providing affirmative insurance in all matters is by way of endorsement. The use of affirmative language can create ambiguities in the policy. Endorsements have the benefit of language that has been reviewed and approved by industry counsel and regulators. They therefore provide consistency in interpretation by insured, insurers and the courts. Endorsements also properly include the coverage in the policy consistent with the other terms and conditions of the policy. Therefore, notwithstanding the revision in the Rate Manual, when affirmative insurance is being provided in a commercial owner's policy, the Restrictions, Encroachments and Minerals Endorsement should be used and approval of the company obtained as the issuance of the endorsement constitutes an unusual risk.

If you have any questions regarding this revision, please contact the New Jersey District office.